Consumer Prices Rise on Gas, Housing Costs; Sentiment Jumps

WASHINGTON -- U.S. consumer prices increased for a second straight month in March on rising gasoline and housing costs, a sign of an uptick in inflation that should keep the Federal Reserve on course to start raising interest rates this year.

"The data should allay the disinflation concerns that predominated earlier this year and, on the margin, increase the Fed's confidence that inflation will eventually move toward its target," said Michelle Girard, chief economist at RBS in Stamford, Connecticut.

The Labor Department said Friday its Consumer Price Index increased 0.2 percent last month after a similar gain in February. In the 12 months through March, the CPI slipped 0.1 percent after being unchanged in February.

The so-called core CPI, which strips out food and energy costs, increased 0.2 percent in March after a similar rise in February. In the 12 months through March, the core CPI rose 1.8 percent, the largest increase since October.

While a price measure tracked by the Fed is running lower than core CPI, a number of officials have said a rate hike will likely be considered at the June policy-setting meeting.

The Fed has kept overnight interest rates near zero since December 2008. But a recent raft of weak economic data, including the March nonfarm payrolls report, has left many economists believing that monetary policy tightening won't happen before September.

"This report helps to increase policymakers' confidence, but we also need to see further improvement in the labor market. We are very comfortable with our call for a September liftoff," said Laura Rosner, an economist at BNP Paribas in New York.

The economy, however, appears set to rebound from a soft patch in the first quarter. In a separate report, the University of Michigan said its consumer sentiment index jumped to 95.9 early this month from 93 in March.

More consumers believe now is a good time to buy big-ticket household items, as well as automobiles. Consumers' views about buying and selling homes improved significantly, a boost for the housing market.

The overall rise in sentiment bodes well for consumer spending and the economy, which stumbled at the start of the year under the weight of a harsh winter, a resurgent dollar, weaker global growth and a now-resolved labor dispute at West Coast ports.

"The positive momentum in purchasing sentiment suggests consumption should rebound in the second and third quarters of this year and support overall growth in 2015," said Jesse Hurwitz, an economist at Barclays in New York.

The dollar rose against a basket of currencies on the upbeat inflation and sentiment data, while prices for U.S. government debt were slightly weaker.

U.S. stocks fell sharply on investor concerns over a clamp-down on margin trading in China and a number of disappointing earnings reports from U.S. corporations.

Dollar Impact

The rise in inflation, however, may be limited by the strong dollar, which has gained 13 percent against the currencies of the United States' main trading partners since last June.

Economists estimate the dollar could shave half a percentage point off inflation and economic growth this year.

Firming wage growth, however, could mitigate the dollar's impact on inflation.

"But if the core rate is that close to target when it is being constrained by the indirect impact of lower energy prices and the stronger dollar, how high could it get when those transitory effects fade next year?" said Paul Ashworth, chief U.S. economist at Capital Economics in New York.

Last month, gasoline prices rose 3.9 percent, the largest gain since February 2013, after increasing 2.4 percent in February. Food prices slipped 0.2 percent last month, the biggest drop since May 2013.

There were increases in prices of new motor vehicles, used cars and trucks and medical care services. Prices for apparel items and household furnishings and operations also rose. Airline fares fell 1.7 percent.